1. In Alliance Developments v Arbab [2019] VSC 832, the Supreme Court of Victoria (Garde J) considered the circumstances in which it may be appropriate to order indemnity costs against a solicitor in respect of an application to remove a caveat lodged on behalf of a client.
Background
2. The Court had previously ordered that the Registrar of Titles (‘Registrar’) remove two caveats lodged by the solicitor for Mr Arbab, the first defendant, who was a resident of Pakistan, over two properties owned by the plaintiff.
3. In this application, the plaintiff sought an indemnity costs order against Mr Arbab, as well as against Pasha Legal and its sole principal Ms Hina Pasha, who acted for Mr Arbab.
4. The plaintiff alleged that there was no proper basis for lodging the caveats, and that Mr Arbab never had the interests in the two properties that were claimed.
5. In 2013, the plaintiff entered into a contract to buy vacant land in California Gully, Victoria. It intended to subdivide the property into five lots and build new homes on the lots. Mr Arbab, who was then a director of the plaintiff, alleged that he contributed $34,300 to the purchase.
6. In 2014, another director of the plaintiff entered into a contract to buy a property located in Laverton North for a purchase price of $423,000. The plaintiff was subsequently nominated as the purchaser and became registered as owner of the Laverton North property.
7. In the background, Mr Arbab was in dispute with his fellow directors about building projects on eight properties, not including the California Gully and Laverton North properties.
8. In the judgment, Garde J noted, among other things, at paragraph 16 (emphasis added):
When lodging a caveat, the estate or interest claimed, the ground of the claim, and the nature of the prohibition are of prime importance. The claimed estate or interest in land is a central concept in a caveat. Care must be taken to ensure that the claims made are correct, and accurately reflect the caveator’s estate or interest in the land the subject of the caveat. A caveat may only be lodged in a form commensurate to the interest it is designed to protect.
9. The Honourable Justice Garde then proceeded to list several cases where the caveats in question were held to be defective.
10. The lawyer for Mr Arbab lodged a caveat over the title to each of the California Gully property and the Laverton North property.
11. In respect of the Laverton North property, the estate or interest claimed was a freehold estate, and the prohibition was absolute. The ground of the claim was ‘Implied, Resulting, Constructive Trust’. Garde J noted at paragraph 24:
The ground relied on by Mr Arbab was expressed in general terms. It did not refer to any agreement or basis for the claim. It did not descend into particulars or provide any explanation as to how the alleged trust arose, or how it gave rise to a freehold estate.
12. In respect of the California Gully property, the estate or interest claimed was again a freehold estate and the prohibition was absolute. The ground relied upon was: Registered proprietor(s), being entitled to possession of the Certificate of Title for the land and to prevent improper dealing.
13. Garde J noted at paragraphs 27 to 29 of the judgment:
The claim made was misconceived and nonsensical. The plaintiff had been the registered proprietor of the California Gully property since 2017. The ground of claim was suitable only for a registered proprietor who sought to receive notification from the Registrar of the lodgement of a dealing affecting the land.
28. Mr Arbab was not and did not purport to be the registered proprietor of the California Gully property. He claimed an interest in the California Gully property on the basis that he contributed $34,300 to the purchase price when the property was acquired.
29 The 2018 caveat made no reference to any agreement or financial contribution made by Mr Arbab at the time of the purchase of the California Gully property. It did not claim a lien or any other right relating to supervision or management work of Mr Arbab in connection with other properties, or assert any lien or right over the California Gully property. It did not make any claim for an interest consequent upon a resulting trust as suggested by … [counsel’s] advice.
14. The plaintiff applied to the Registrar of Titles pursuant to section 89A of the Transfer of Land Act, 1958 (“the TL Act”) for removal of the two caveats.
15. In response, the lawyer for Mr Arbab wrote to the registrar of titles and asserted that proceedings were on foot to justify the caveats.
16. In fact, the only proceedings on foot were in relation to the shareholder dispute between Mr Arbab and his fellow directors of the plaintiff.
17. At paragraph 34, Garde J noted:
The notice given by Ms Pasha was wrong and misleading.
18. This is not a finding that a legal practitioner wants a Supreme Court Justice to make!
19. In any event, the Registrar of Titles took no action to remove the caveats, pending the outcome of the proceedings that he thought were on foot.
20. This necessitated the plaintiff issuing its own proceedings and seeking an order for removal of the caveats under section 90(3) of the TL Act. Before initiating proceedings, its lawyers sent a letter demanding that the caveats be removed. In that letter, the lawyers for the plaintiff foreshadowed an application for costs against the lawyer for the caveator.
21. After the proceeding was issued, and directions were made about filing further affidavits and submissions, Mr Arbab consented to the removal of the caveats and to an order that he pay costs an indemnity basis.
22. The plaintiff then made this application for an order that the caveator’s lawyer pay its costs of the application, on an indemnity basis.
23. At paragraphs 56 and 57 of his judgment, Garde J noted (emphasis added):
It is well established that the lodging of a caveat is a serious business. It has the potential to affect commercial transactions and the lives and financial interests of others, and is not available as a bargaining chip. A shareholder has no caveatable interest in land belonging to a company.
57. The only proper purpose in lodging a caveat under s 89(1) of the Act is to protect the estate or interest claimed in the caveat by operation of the statutory injunction against the registration of subsequent dealings and to provide notice of the existence of the estate or interest to those who inspect the Register. The lodging of a caveat for ulterior purposes is a serious misuse of the statutory provisions.
24. The Honourable Justice Garde then analysed the cases relating to indemnity costs, and noted:
In Love v Kempton, Forrest J observed that a person who lodged a caveat without proper grounds should be brought to book if others are forced to resort to court proceedings to remove a caveat which has no proper basis. The costs associated with removal of a caveat are heavy and the difference between standard costs and indemnity costs is considerable.
25. Garde J concluded that special circumstances existed in this case, such that the defendant, Mr Arbab, should be ordered to pay the plaintiff’s costs of the proceeding on an indemnity basis.
26. At paragraph 70, Grade J noted (after analysing the facts leading to the lodging of the caveats):
In light of the above, it must be concluded that the … caveats were not seriously intended to maintain the estate or interest in land claimed in them, but were intended to apply commercial pressure on the plaintiff and its directors and inhibit their property dealings. They were bargaining chips which had the effect of freezing the California Gully and the Laverton North properties. Their purpose was to make it impossible for the plaintiff to sell or use the properties as security for loans.
27. Perhaps of more interest to practitioners is what Garde J had to say about the application for indemnity costs against the lawyers for the caveator. Those costs were claimed from the lawyer under either order 63.23(1) or the inherent jurisdiction of the court to supervise its own process. Garde J noted that: “The inherent jurisdiction requires a serious dereliction of duty or gross negligence, but this is not necessary under r 63.23. … Under r 63.23, a solicitor’s negligence or failure to act with reasonable competence may justify a personal costs order. It extends to orders that a solicitor personally pay costs in cases where it is proper to do so.”
28. Among other considerations, Garde J noted
(at paragraph 87): Pasha Legal’s duties to the Court included a duty on the factual and legal material available not to make a claim or respond to a claim in a civil proceeding that did not have a proper basis. Pasha Legal was required not to engage in misleading or deceptive conduct or conduct likely to mislead or deceive.
(at paragraph 88, among other matters): there is no sign of any serious assessment by Pasha Legal of the basis of the claims made in the caveats; there was no documentary evidence or corroboration of the claim made in either caveat; Pasha Legal was given notice that it was at risk for costs; no attempt was made to uphold either caveat; the real purpose behind the caveats was to use them as a bargaining chip; in relation to the s 89A application, Pasha Legal engaged in conduct that was misleading or deceptive or likely to mislead or deceive by misrepresenting to the Registrar that the correction proceeding would substantiate Mr Arbab’s claims as caveator in relation to the Laverton North and California Gully properties and the estate or interest which he claimed. The correction proceeding related to the state of the plaintiff’s share registry, and did not seek any relief concerning the Laverton North or California Gully properties; when they found out what had occurred, the plaintiff’s solicitors expressed concern at the certification and statements made to the Registrar. Despite this, Pasha Legal did not withdraw the caveats or advise Mr Arbab that they should be withdrawn immediately; by refusing to withdraw the caveats, or to obtain counsel’s advice, Pasha Legal triggered the proceeding to remove them. Pasha Legal did not at any time appreciate that the caveats were not maintainable and were highly likely to be removed by the Court; Pasha Legal maintained a combative style, particularly in the early stages of the proceeding; and ultimately, it was Mr Arbab who came to the view that the proceeding should not be opposed, and agreed to pay the plaintiff’s costs of the proceeding.
(At paragraph 89): … it is my view that Pasha Legal failed to act with reasonable competence and was negligent and in breach of its duties to the Court as to:
(a) the drafting of the caveats;
(b) the s 89A application;
(c) the misrepresentations made to the Registrar;
(d) the refusal to withdraw the caveats to avoid the proceeding;
(e) the failure to acknowledge that the caveats were unsustainable; and
(f) the failure to brief counsel with the relevant facts, or if in doubt, obtain counsel’s opinion as to whether the caveats were maintainable.
(And finally at paragraph 90): … I am satisfied to a comfortable level of satisfaction on the balance of probabilities that Ms Pasha failed to
act with reasonable competence and that she was negligent and acted in breach of her duties to the Court. The statements and certifications made to the Registrar were egregious. They
resulted in the need for the plaintiff to incur the costs of the proceeding.
Conclusion
29. As noted, the Court concluded in this case that the caveats in question were inherently defective and the solicitor in question failed to act with reasonable competence in lodging the caveat.
30. As a result of those findings, the Court ordered that the caveator and the solicitor pay the applicant’s costs on an indemnity basis.
31. This case confirms how critically important it is to ensure that a caveat has a proper basis for lodgement, and the serious consequences that may flow from not meeting the minimum standards required in assessing the alleged basis of the caveat.
WG Stark
Hayden Starke Chambers
